Philippine’s Growth Forecast Remains Unchanged Despite Elevated Inflation

Written by Marc Adrian

The growth forecast of the Philippine economy done by the Asian Development Bank (ADBP) has remained unchanged. However, despite the growth, it is expected that the inflation will also remain higher than forecasted this year.

In a supplement to its Asian Development Outlook 2018 Update report, the ADB said the Philippine economy will likely grow 6.4 percent in 2018 and 6.7 percent in 2019, unchanged from its previous estimates.

If the government can attain ADB’s projection, the inflation would fall on the low-end of the government’s goal which was 6.5 to 6.9 percent. Meanwhile, 2019 until 2022’s target growth is 7 to 8 percent.

In September, ADB reduced its growth forecast due to the runaway inflation and slower-than-expect gross domestic product expansion. Soaring prices and surging borrowing costs have already weighed on consumer spending, which has traditionally been the driving force behind growth in the Philippines, and crimped economic expansion to a three-year low of 6 percent in the third quarter.

The Duterte administration in the midst of the inflation has implemented measures which sought to address food supply bottlenecks, and the central bank has aggressively tightened their monetary policy. Despite that, the ADB still upwardly revised its Philippine inflation outlook to 5.3 percent this year from its previous estimate of 5 percent. Meanwhile, the lender’s inflation forecast for 2019 was steady at 4 percent, matching the upper-end of the state’s 2-4 percent target range.

According to ADB, food prices rose significantly due to the weak agricultural output, and high global oil prices early in the year, and the new excise taxes also contributed to the inflation.

However, ADB noted that the recent buildup in inflationary pressure should moderate next year. The tight monetary policy will kick in following a cumulative rate hike of 175 basis points implemented from May to November 2018.

In the first 11 months of 2018, inflation averaged 5.2 percent, still above the BSP’s target range.

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